Thursday, March 20, 2008

Ask Erin: The Comeback of FHA Programs

If you talk to most loan officers who have been in the business for a while, they will tell you that aggressive conventional loan programs have been far more popular over the last decade than FHA loans.

Given what is going on in the real estate market, and the death of the majority of the aggressive loan programs - FHA is making a comeback. Not only is it making a comeback, but the program has evolved over the last several years...

For those of you not familiar with FHA's requirements...allow me to dispell a few myths. Basically anyone can qualify for an FHA loan, provided that one of the borrowers will be occupying the subject property as a primary residence. There are no income restrictions or limitations! The minimum downpayment for FHA is roughly 3% - and that 3% can be paid by the borrower, gifted from a family member, or paid by the seller via a 3rd party downpayment assistance program. There can be a total of 6% contributed from the seller for downpayment assistance, closing costs, or a combination of both. There can be a non-occupant "co-borrower", meaning for example, that a parent can basically co-sign for a child. There is NO minimum credit score requirement!...You can have a discharged bankruptcy or past foreclosure and still qualify under many circumstances. Keep in mind that even with no minimum credit score, it is still ideal that the borrower have few current delinquent accounts.

FHA can also be coupled with other programs - for example the Streamline K (you can borrow up to $35k additional for a qualifying property for non-structural repairs...great for bank owned property) or the Energy Efficient Mortgage (you can borrow up to $8k additional to make the house more energy efficient - dual pane windows, HVAC, etc.).

The kicker...the new FHA loan limits in Sacramento, Placer, El Dorado, and Yolo Counties are $580k for a single family home, and up to $1.1M for a fourplex!!!

I just had a buyer client close an FHA purchase. They leveraged a downpayment assistance program, and received a 6% contribution from the seller/Nehemiah for their downpayment (3%) and closing costs (3%). They got a 6% interest rate 30-year fixed loan, and came out of pocket on their purchase around $900.00.

I just had a seller client sell their home to an FHA borrower who had a non-occupant parent co-signer. The seller (my clients), contributed 3% for closing costs, and the buyer's parents gifted 3% down and co-signed the loan.

These loan limit increases are in effect ONLY UNTIL THE END OF 2008....normal FHA loan limits for a single family home are $362,790.

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